Microsoft Angst

The Microsoft angst so publicly displayed by Intel's top systems builder partners at a conference last week spells big opportunity for Linux vendors and Microsoft Office competitors, including Corel's WordPerfect Office suite, Sun Microsystems' StarOffice and the Linux-based Open Office.

The frustration vented by the systems builders also offers a big opportunity for Intel to step in and attempt to negotiate a cooperative buying agreement that could help close the pricing gap between the 384 premier Intel partners and OEMs such as Dell Computer on Windows XP and Microsoft Office. The disparity has existed for years, but the issue has gotten hotter in the wake of the dramatic reduction in PC hardware prices and as the price tags for Microsoft's operating-system and office-productivity software have become a larger percentage of the total system sale.

Jim Heustess, sales manager at Tulsa, Okla.-based Quality PC, an 11-year-old, $5 million Intel Premier Provider with 17 employees, says he has never heard jeers the likes of which Microsoft's top systems builder executive received last week from partners. CRN Senior Editor Edward F. Moltzen writes about the fallout in our news story on page 5. Heustess estimates that Dell gets Microsoft Office for $40 less than the price paid by Intel Premier Providers such as Quality PC, while there is a $20 gap on Windows. Furthermore, partners say the price of the operating system has tripled in the last 12 years. This with hardware prices declining at an astronomical rate. Some claim Microsoft's operating system and Office "tax" account for 40 percent of the price of a basic PC.

Heustess' Linux business, by the way, has doubled in the past year. He estimates that his company will build 300 Linux-based systems for firewalls and Internet appliances. In addition, Heustess offers Linux-based Open Office as an option for these customers. Heustess said he likes Microsoft's products but is frustrated by the pricing issue. His message to Microsoft: Listen to systems builders. "The worst thing they can do is ignore this," he said.

Microsoft underestimates the value of the local touch provided by systems builders and the ability of these partners to switch customers to alternative products. In the end, Microsoft's choice is clear: Make some pricing changes or watch more partners turn to Linux and alternative products.

Do you have Microsoft angst? Let me know at (781) 839-1221 or via e-mail at sburke@cmp.com.